Employers Rounding Time Should Be Cautious Following 8th Circuit Opinion

By Corie J. Anderson - Peters, Revnew, Kappenman & Anderson, P.A.

August 25, 2023

Rounding of time is nothing new. For payroll simplicity, employers have rounded time up and down for decades, beginning when we actually put a timesheet into a punch clock to “punch the time” (yes, I did!). To that extent, the US Department of Labor (DOL) has long permitted employers to round the times employees “clock in and out”, provided the rounding goes both directions (up and down). The DOL’s regulations (29 C.F.R. §785.48(b)) requires that rounding must “not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” However, the regulations also make clear that even if employees punch in early, if they are not performing work, the “minor differences” between clock records and actual hours worked may be “disregarded”.

On August 11, 2023, the Eighth Circuit issued an opinion in Houston v. St. Luke’s Health System, Inc., finding that a genuine dispute remained regarding whether a rounding policy was lawfully applied. In that case, ex-employee Torri Houston, suing on behalf of herself and fellow coworkers, argued that St. Luke’s rounding policy based on an automated timekeeping system resulted in underpayment to employees. The employers policy rounded clock times within 6 minutes of the shift’s scheduled start or end time. Thus, an employee who clocked in at 12:54 p.m. for a 1:00 p.m. shift would have their time rounded up to 1:00 p.m. (and not get paid for the six minutes worked). Conversely, if an employee clocked out at 2:54 p.m. for a shift that ended at 3:00 p.m., they would have their time rounded up to 3:00 p.m. (getting paid for 6 minutes they did not work). St. Luke’s argued that its rounding policy was lawful and neutral.

Yet, the Eighth Circuit found there was a consistent pattern of employees receiving less compensation than they were owed over the years. Data showed that the policy resulted in cutting time from about 1/2 of the shifts, adding time to a little over 1/3 of the shifts and had no effect on the remainder. The experts concluded the policy favored St. Luke’s by 74,000 employee hours over a 6 year period ($140k in damages for a 2 year FLSA period and $2.2M for a Missouri 6 year period – no, we don’t worry abbot that here in MN). For the named plaintiff, overall she only lost 7.6 hours over a 6 year period ($205.13 or $32 per year). Fortunately for her, even if she is owed $1 she can win the case, plus (importantly for her counsel), attorneys’ fees and costs. The district court found in St. Luke’s favor given the rounding was not much per person and was neutrally applied as it went up and down.

Here’s where St. Luke’s went wrong. It actually stipulated that all “on the clock” time was compensable time. As you read above, the regulations require pay for all hours worked, but contemplate that employees may clock in but not work right away (i.e., clock in at the desk, grab coffee, put lunch in fridge, etc.). Here, St. Luke’s curiously agreed for purposes of the summary judgment motion (asking the court to rule without a trial based on the facts alone) that all time on the clock was work time. Thus, it could not argue that employees clocked in and did not do work right away and thus, even if the records show they were “underpaid” some of the clock time was time not worked. Further, the plaintiff showed that the rounding policy does not average out over time as the majority of employees were underpaid.

Accordingly, the Eighth Circuit found there was sufficient evidence to raise a genuine dispute regarding whether St. Luke’s rounding policy results in systematic underpayments over time (sending the case back down to the district court for trial). Now, St. Luke’s will need to provide evidence at trial that employees did not work all the time reflected on the time clocks (i.e., showing employees would stop for coffee, etc.).

Your takeaway – if your business rounds time, make sure it goes both ways AND you should consider regular internal audits to determine whether time does in fact “average” out. If you find that more often than not that the clock is rounding to the employer’s favor (i.e. your employees always clock in early and always leave right on time), consider a different pay policy.

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